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Fundamental Australian Dollar Forecast: Neutral

  • The Australian Dollar has held up quite well this month
  • Overall risk appetite will probably decide its fate
  • However this week’s local economic events may be supportive

Find out what retail foreign exchange traders make of the Australian Dollar’s prospects right now, in real time, at the DailyFX Sentiment Page

The Australian Dollar continues to hang tough against its US cousin, holding still above the long downtrend line that had held sway for much of this year, until November 1 indeed.

AUD/USD may manage to stay around current levels in the week ahead, assuming the overall risk appetite that tends to favor the Aussie holds firm. Investors will not see a huge amount of Australian data to add to their current picture of an economy performing rather well overall. They will however get the minutes from the last Reserve Bank of Australia monetary policy meeting, which took place on November 6.

The Official Cash Rate was left on hold at its record, 1.50% low back then. This surprised no one given inflation’s enduring weakness. It also meant that 1.50% tenure as the longest unchanged interest rate in Australian history stretched into a 28th month. It will probably stretch a lot longer too. Rate futures markets do not price in any change for all of next year.

However, they are now starting to look a bit more convinced about a rise by the start of 2020, and this is the key point.

Investors do still seem reasonably certain that, when the next move comes, it will be an increase, and that suspicion offers AUD/USD some support. It is pretty marginal support, to be sure. One quarter-point rate rise more than a year hence is not after all the stuff of which durable currency rallies are made. They’re especially not so when the US Federal Reserve is already a long way down the rate-hiking path and determined to go still further if it can.

But the conviction that the RBA will not completely miss the hiking cycle endures. And that’s something.

If the central bank’s minutes remind investors that ‘low interest rates cannot be around forever,’ or some similar form of words, and Thursday’s Purchasing Managers Index numbers hold up, then the Aussie can probably keep up too.

However the interest rate environment still does not favor it, and there are signs of slowing in many of its key trade partners, notably China.

The Australian Dollar need not slide against the US version this week, but its bias probably remains toward more falls.


--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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